By FWi staff
THE Inland Revenue has announced that it is relaxing the “hobby farming” loss relief restriction, a move which should cut many farmers tax bills.
The restriction was set up to stop lifestyle farmers who had other income deliberately making a loss on the farm to reduce their overall tax liabilities, says Carlton Collister of accountant Grant Thornton.
Farm businesses making a loss for six years in a row lost the chance to offset this loss against other farm income.
Instead, it could only be carried forward and set against future farming profits, so the immediate cashflow benefit of the tax relief was lost.
But falling incomes mean many genuine farmers would have been caught out this year, says Mr Collister.
Now, farmers facing loss relief restriction for the first time in 2000/01 will not have their loss relief restricted if:
- 2000/01 is the sixth year of loss;
- they made a profit in 1994/95; or
- they made a profit in one of the three tax years before 1994/95.
“This will provide a welcome reduction to tax bills relating to other income,” says Mr Collister.
“But it should also be noted that losses for these purposes are calculated before capital allowances, and for businesses trading before 06 April, 1994 are calculated on a fiscal year basis for 1996/97 and earlier years.”